NUJ loses BBC pensions case

“Our legal action to defend BBC pensions was undoubtedly the right thing to do”, says David Gallagher, Father of Chapel at BBC Radio and a producer on Radio Three. “It shows that we are a fighting union and it has changed minds within the BBC management – although, obviously, I am bitterly disappointed that we didn’t win.”

Some with inside knowledge of BBC management do detect a more consistent approach to pension management since the union initiated action, it is true. Given that as a result of losing the case, the union will have to pay the BBC’s legal bill – potentially as much as £200,000 – however, Gallagher’s bullishness demands testing.

Some background. In recent decades, the BBC has made repeated changes to staff pension entitlements, always with the aim of reducing them. These were necessary to make the scheme sustainable, said the corporation, although it took an 18-year ‘contribution holiday’ during the good days. Staff and their unions have always argued against such cuts. In 2010, however, drastic changes were announced.

A cap, determined by the BBC, would be placed on how much of any future pay rise could be counted towards pensionable final salaries. Staff were encouraged to leave the final salary scheme for a ‘money purchase’ alternative.

“For many members, it would have meant an up to 40 per cent reduction in their final entitlements”, says David Gallagher. “For the great mass of us who are not on superstar salaries, the result would be retirement poverty”.

The NUJ and BECTU initially sought to negotiate less damaging changes. This improved the situation slightly, as did the subsequent talks at ACAS. Now the cut in pensions would be around 20 per cent. Both unions balloted on proposals BECTU members accepted NUJ members voted 70:30 aainst and took two days strike action.

“The journalists were furious, but defeating the proposals through strike action now looked impossible”, David Gallagher remembers. So now activists considered a legal solution. The process was expected to be lengthy but a packed M/FoCs meeting unanimously decided to initiate proceedings. Then they had a stroke of luck.

John Bradbury is lead clarinet with the BBC Symphony Orchestra. He had already exhausted the Pension Ombudsman’s complaints procedure and was about to initiate legal action when he contacted the NUJ.

“I paid thousands of pounds into the pension scheme, so when the BBC announced that they were reducing returns without consulting the Trustees, I felt they were guilty of mid-selling a financial product”, he says. “This was never about pig-headed entitlement; I simply wanted the scheme trustees to properly consider any changes.”

“It seemed fortuitous”, says David Gallagher. “By backing John Bradbury’s case, we would get to court quicker, save money and, whatever the outcome, it would apply as much to the journalists as to the musicians.”

So confident were the NUJ’s solicitor and barristers, that they took the case in return for a conditional fee – meaning that they would be paid only if the case succeeded.

“The crux of the case was whether the BBC was entitled to cajole – to use a mild word – members into leaving a very good pension into one which is very much worse”, he says. “The corporation did this by offering two alternative unpalatable choices: see the value of your pension erode by accepting a cap on pensionable salary, or accept that you will never get a pay rise again.” Andrew Stafford QC and Nicholas Randall QC represented the NUJ in court.

The subsequent legal grind has been far longer than expected. The case went to the High Court, which referred it back to the Pensions’ Ombudsman in the hope of finding common ground. When that failed, it returned to the High Court and was finally heard by the Court of Appeal. There, in July this year, however, Lady Gloster ruled in the BBC’s favour.

Walker calls it ‘the most disappointing decision of his career’. “The Court of Appeal's decision on what the rules mean is, I think, pretty clearly wrong”, he says. Because the decision does not affect a matter of ‘general public importance’, however, there is no route for further appeal.

The BBC’s final legal bill is not yet known (and will be subject to challenge). Contributions from the big BBC Chapels will meet a sizeable portion of the cost and other fund-raising is planned.

John Bradbury suffered a salary reduction as a result of the original pay-round-threat-letters, which has never been made good. His fighting spirit, however, is undimmed. “The NUJ’s fearlessness is something for which I will always be grateful”, he says.

David Gallagher too insists that the NUJ’s reputation is enhanced by our actions: “I’m sure that our resolve has changed minds”. He won’t be drawn when pressed for evidence – mindful, as his is, of his responsibilities as a trustee of the BBC scheme.

He does, however, point to an article written by Lucy Adams, the BBC’s former HR director, who oversaw the 2010 changes to the pension scheme. Writing in People Management she said: “My biggest regret(s) during my stint as director of people at the BBC was the way I handled the closing of the final-salary pension scheme”. Scant consolation, you might think, but a trades union’s reputation for steadfastness is its most valuable asset wherever is the negotiating table.

The BBC had a defined benefit (DB) pension scheme which had three Sections – "Old Benefits", "New Benefits" and "CAB 2006". The Old Benefits and New Benefits Sections were traditional final salary schemes, where the pension at retirement is a fraction of salary in the last year of employment. CAB 2006 was a career average scheme (CAB stands for "Career Average Benefits"), where pension is based on a fraction of salary earned in each year of employment rather than final salary. Old Benefits was more generous than New Benefits, which was more generous than CAB 2006.

The New Section and CAB 2006 were added in 1996, and in 2006, as the scheme got more expensive, but for new employees only. That is because members could not be removed from the Section they were in without amending the rules, and an amendment requires a majority vote in favour at a meeting of the members..

The BBC also had a defined contribution (DC) scheme called "Life Plan". As DC schemes go it is fairly generous, and for employees who do not envisage a long BBC career, joining Life Plan would not necessarily be a poor choice. For employees planning a long-term career in the BBC, the DB options were very much better.

In 2010 the triennial valuation was underway, and looked likely to produce an outcome the BBC could not live with. It therefore made a proposal that:

1. CAB 2006 (the only open DB Section) would be closed to new entrants; new employees would only be able to join Life Plan.

2. For existing employees, members in the three DB Sections could remain where they were, but if they did their pensionable salary increases would be capped in the future: whatever increase they were offered would be conditional on accepting that only the first 1% would count as an increase in the pensionable salary used to calculated final salary or career average benefits. So actual pay might increase by, say, 2%; but actual pay would become progressively detached from pensionable salary.

If that condition was not accepted the offer of a pay increase would be withdrawn altogether.

As an alternative, existing members could voluntarily opt to leave their existing DB Section and join Life Plan, where no cap would apply.

NUJ and BECTU were incensed. Both saw this as coercion forcing members into Life Plan, effectively closing the DB Scheme because most members (or at least most middle-aged and younger members – the BBC worked out the stats and probabilities) would "volunteer" to join Life Plan.

Faced with a strike, the BBC modified its stance. Instead of joining Life Plan to avoid the cap, members could opt to join a new, much inferior career average Section called CAB 2011. The BBC's actuaries' calculations were that most Old Benefits, New Benefits and CAB 2006 members would still opt out of their existing Section and join CAB 2011 or Life Plan. BECTU settled for that. The NUJ did not. Without BECTU support industrial action would not be viable and the strike threat therefore fizzled out.

What was the BBC's legal justification?

It's moral justification was money of course, and the use of the licence fee.

The BBC's justification changed as the dispute progressed.

1. It started off saying that the rules allow it to determine what bits of actual salary counts as pensionable salary. The rules originally said that pensionable salary was the member's "basic salary from the employer". That was changed in 2007 when "basic salary" became a defined term, the definition being that it was the amount that the BBC determined to be the member's basic salary. The common understanding of a rule such as the 2007 amendment (which is not uncommon) is that it allows the employer to decide in cases of doubt what elements of pay count as basic salary and what does not in cases of doubt. The scheme actuary in 2007 agreed, and signed the amendment off as making no change of substance. But now the BBC said this change meant it could decide what a member's basic is.

The BBC essentially abandoned this justification during the dispute, and didn't press the argument with any vigour in court (but the Court of Appeal returned to it – see below).

2. The BBC's fall-back was that, whatever the rules say, members could contract out of their entitlements under the rules. So it offered members the choice: insist on your entitlements under the rules, in which case your basic will never rise again; or agree not to insist on your rights under the rules, and accept, as a binding contractual commitment, not to claim that your pension should be based on what the ordinary man or woman on the fabled omnibus would say it was.

The NUJ said that any such contractual commitment would be void. Either it was squeezed out of the member by coercion, which would amount to a breach of the implied term that the employer will not conduct itself in a manner likely to destroy its employees' trust and confidence without reasonable cause; or it amounted to a surrender of pension rights that the Pensions Act (section 91) prohibits.

The High Court held that the rules did not permit the BBC to decide what pensionable salary is (point 1 above). As the judge said, if the rules mean what the BBC says they mean, the BBC could determine that half of a member's actual basic salary, as the term would usually be understood, would be pensionable, halving their pension. He found against us on the surrender issue; and remitted the trust and confidence issue to the Pensions Ombudsman to examine.

The Ombudsman accepted, as a finding of fact, that the BBC's need to save money was so overwhelming that it was entitled to do what it did.

The Court of Appeal surprised everyone by buying the BBC's original justification: the rules permit it to decide what a member's basic salary is for the purposes of the pension scheme, and therefore what their pensionable salary is.

Why did the NUJ fight the case?

The Court of Appeal judgment turns on whether the BBC is entitled to decide what proportion basic salary is pensionable, but that is not what the case was really about. Its origins were in the question whether it was able to cajole (to use a mild word) members into leaving a very good pension scheme into a scheme which is very much worse by offering two alternative unpalatable choices: (i) see the value of your pension erode by accepting a cap on pensionable salary or (ii) accept that you will never get a pay rise again.

The members were spitting mad of course.

The BBC did not discuss how to resolve any pension problems with the union (or with BECTU) in advance of presenting a fully-formulated plan – which is no way to conduct industrial relations.

The Pension Fund trustees were also angry. The BBC's course of action meant that an amendment to the rules was not required; therefore the trustees' consent was not required. Having told the trustees at an early stage that it would discuss how to deal with the deficit in the pension scheme, the BBC then sprang their "solution" on the trustees too.

From a legal perspective

The case was important because it raised three controversial questions:

1. The way in which the duty to maintain trust and confidence in the context of a pension scheme was unclear; the case which was closest to our facts said that leaving members with a choice to make which was in truth no choice at all, was a breach.

2. The extent to which a member could, by contract, agree not to assert his or her rights under the rules of a pension scheme was unclear. There was one previous High Court decision which said that they could, but the facts were very different: in that case the union (ASLEF) struck a very good deal with the employer. The rules could be amended to accommodate it, but the trustees were not sure whether they should agree to amendments and asked the High Court for clarification.

3. At a more technical level, what amounts to an unlawful surrender of pension rights had never been fully analysed by the courts at all.

By coincidence, the first two questions were raised in another case which was running alongside us called IBM v Dalgleish. The IBM members won in the High Court but IBM appealed to the Court of Appeal, where IBM won and the High Court decision was overturned.

This is the most disappointing decision of my career. The Court of Appeal's decision on what the rules mean is, I think, pretty clearly wrong. But that was the core of their decision (the ratio decidendi in legal jargon) and could only be appealed if it was a point of general public importance – it isn't because it only affects the BBC and its employees. Its examination of the three points above was cursory: counsel and I came out of the hearing thinking that we had won on them, but the judgment hardly addresses what we said. We still think we are right on at least the collateral contract and surrender issues, but since the core of the decision is the question of interpretation, and these questions became secondary (if the rules permitted the BBC to do what it did, surrender and contracting out of rights under the rules become irrelevant) they are unappealable too.